The Battle of Citizens begins in Florida Legislature

The Florida Senate Banking and Insurance subcommittee has sent a bill to the full Senate that would revamp Citizens Property Insurance Corp. significantly. Members of the committee say the bill would take Citizens back to its roots as the insurer of last resort for the state’s residents. The company is currently the largest insurer in the state with 1.2 million policies.

The bill has a couple of major components. First, it would alter the way Citizens sets its rates. Second, it would limit eligibility for coverage. A third and more controversial component would work to stimulate the private insurance market in the state.

Critics have long complained that Citizens cannot write actuarially sound policies under current law. We have written about the great rate debates before, when lawmakers twist and shout that limiting annual rate increases to no more than 10 percent is putting the insurer’s solvency — and, consequently, Florida residents’ checkbooks — at risk. The argument also goes that the artificial suppression of insurance rates keeps private insurance companies from entering the market.

This 10-percent limit is known as “the glidepath,” and the bill would do away with it for new policies. New rates would be based on what private insurance companies are charging. Citizens would look to the top 20 private insurers in the applicant’s territory and base the rate on the highest of those. In the absence of a private market in the area, Citizens would have to use standard actuarial practices to determine the rate.

Existing policies will not entirely be limited by the glidepath under the proposal. Citizens could increase all of its rates by 3 percent, presumably over and above the 10 percent statutory limit. The 3 percent would finance the purchase of additional reinsurance coverage; the thinking is that more reinsurance would reduce the policyholder surcharges by an estimated 1 percent.

All of this is intended to encourage homeowners to turn away from Citizens to private insurance carriers. Lawmakers continue to believe that private insurers are unwilling to enter the market because Citizens’ rates are too low to compete with.

“Depopulating” Citizens will take more than overhauling its rating processes for new customers. Lawmakers also believe the company must shed existing policyholders, and this bill has come up with an interesting way to do that.